IMF says Russia cbank rate rise needed

bbj.hu

Tuesday, April 22, 2008, 14:08

The International Monetary Fund believes Russia’s central bank needs to raise interest rates further as there are strong signs of overheating in the Russian economy, the head of the IMF in Russia said on Tuesday.

“There are strong signals that the Russian economy is overheating. We indeed think that monetary policy is loose and needs some tightening,” Neven Mates told a briefing.

Russia’s $1.3 billion economy grew by 8.0% in the Q1, according to the Economy Ministry estimates, with the global credit crunch failing to dent the oil-fuelled bonanza Russia enjoyed in the last decade. The latest batch of statistical data released this week showed Russian wages were up almost 30% year-on-year in March, retail sales up 16.5% and capital investment up 20.2%, with unemployment at 4.8%. The robust data puzzled the analysts who expected a lending slowdown and cooling of demand to dampen price growth, pushed up by higher food prices and loose fiscal policy.

The IMF expects consumer price growth to stay at about the same level as last year provided there is no substantial policy change. Consumer price growth returned to double digits in 2007, hitting 11.9%, and became the biggest economic policy challenge for the government. The central bank raised all its interest rates last February, with the one-day repo rate rising by 25 basis points to 6.25%, in a bid to curb money supply growth and inflation but in a controlled exchange rate environment the interest rate policy has limited effect.

LIMITED EFFECTMates said the February rate rise was only the first step in the central bank’s tightening cycle. “We should expect a further increase in interest rates,” he added. Mates called on Russia to allow more ruble exchange rate flexibility and gradually move to an inflation targeting regime, which would enable Russia to steer the economy with interest rates policy. The central bank keeps the ruble within a flexible band against the dual currency basket, made of $0.55 and €0.45. Exchange rate appreciation is the country’s most powerful weapon against inflation.

Russia does not owe money to the IMF and has no obligations to follow its advice but Mates’ statement will play in favor of the fiscal and monetary hawks’ camp in the government, headed by Finance Minister Alexei Kudrin. Kudrin and his supporters at the central bank have also argued the economy is overheating, opposing plans to cut taxes and boost economic growth brought forward by some Kremlin economists backed by industrial lobbies. The outcome of the overheating debate is likely to shape up the course of the next government, which will be led by outgoing President Vladimir Putin, who takes over as Prime Minister after the inauguration of president-elect Dmitry Medvedev. (Reuters)

Related articles

Agricultural producer prices overall remained unchanged in June 2018 compared to June 2017, resulting from an increase of 3.5% in the average price of crop products and a decline of 5.6% in prices of livestock and animal products, the Central Statistical Office (KSH) reported on Tuesday.

Hungaryʼs government has discussed a ban on skyscrapers in Budapest to preserve the traditional profile of the capital. However, the ban would not apply to the planned office building of national oil and gas company MOL.

Low water levels on the Danube have reduced freight capacity on the stretch of the river that runs through Hungary by two-thirds. High temperatures in August and drought have severely lowered the Danube water level, now at 93 centimeters in Budapest.

In the second quarter of 2018, gross domestic product (GDP) in Hungary rose by 4.4% according to seasonally and calendar-adjusted and reconciled data, the Central Statistical Office (KSH) said in a flash report released on Tuesday.

The main reason for real estate acquisition in Hungary is investment, according to a recent study by real estate broker Duna House. Interestingly, entrepreneurs ranked only second as the most active buyers of property.

Forint liquidity of Hungaryʼs banking sector narrowed in July from a month earlier, which was mainly reflected in a decrease in the average stock of one-day deposits, the National Bank of Hungary (MNB) said in a report based on preliminary data on Monday.

One-fifth of Hungarian pensioners, or about half a million people, would be willing to take a job, shows a survey carried out by the GKI economic research institute in June 2018, cited by state news agency MTI on Monday.

In June 2018, the volume of industrial output in Hungary grew by 4.2% year-on-year, according to a second estimate of data by the Central Statistical Office (KSH), confirming the headline figure released on August 8. Based on working day-adjusted data, production rose by 3.1%.

Real estate developer and investment company Wing Zrt. announced on Friday the sale of the MOM Park shopping mall and office property building complex in Buda. The value of the transaction has not been disclosed.